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1 Actuarial Standard of Practice No. 23 Data Quality Revised Edition Developed by the General Committee of the Actuarial Standards Board and Applies to All Practice Areas Adopted by the Actuarial Standards Board December 2004 Updated for Deviation Language Effective May 1, 2011 (Doc. No. 141)

2 ASOP No. 23 ⎯ December 2004 T A B L E O F C O N T E N T S iv Transmittal Memorandum STANDARD OF PRACTICE Section 1. Purpose, Scope, Cross References, and Effective Date 1 1 1.1 Purpose 1.2 Scope 1 1.3 Cross References 1 1.4 Effective Date 1 Section 2. Definitions 2 2 2.1 Appropriate Data 2.2 Audit 2 2 2.3 Comprehensive Data 2 2.4 Data 2.5 Data Element 2 2.6 Practical 2 2.7 Review 2 Section 3. Analysis of Issues and Recommended Practices 3 3.1 Overview 3 3 3.2 Selection of Data Reliance on Data Supplied by Others 3 3.3 3.4 Reliance on Other Information Relevant to the Use of Data 4 4 3.5 Review of Data 3.6 5 Limitation of the Actuary’s Responsibility 3.7 Use of Data 5 5 3.8 Documentation Section 4. Communications and Disclosures 6 4.1 Communication and Disclosure 6 ii

3 ASOP No. 23 December 2004 ⎯ APPENDIXES 8 Appendix 1—Background and Current Practices Background 8 8 Current Practices 9 Appendix 2—Comments on the Exposure Draft and Committee Responses iii

4 ASOP No. 23 ⎯ December 2004 December 2004 TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in Data Quality FROM: Actuarial Standards Board (ASB) SUBJ: Actuarial Standard of Practice (ASOP) No. 23 Data Quality . This booklet contains the final version of a revision of ASOP No. 23, Background Data Quality The ASB originally adopted ASOP No. 23, (Doc. No. 044), in 1993. The previous ASOP was prepared by the Data Quality Task Force of the Specialty Committee of the ASB. The General Committee has prepared this revision of ASOP No. 23 to be consistent with the current ASOP format, to reflect current, generally accepted practice with respect to data quality, and to provide guidance concerning other information relevant to the use of data. Exposure Draft The exposure draft of this ASOP was approved for exposure in October 2003 with a comment deadline of March 31, 2004. Twenty-eight comment letters were received and considered in developing the final standard. A summary of the substantive issues contained in the exposure draft comment letters and the General Committee’s responses are provided in appendix 2. The most significant changes from the exposure draft were as follows: Section 1.2, Scope, has been clarified to indicate that if this standard establishes 1. requirements in addition to those imposed by law, the actuary should satisfy the requirements of both the standard and the law. 2. When data are supplied by others, section 3.3 clarifies that the actuary should follow the guidance of section 3.5, Review of Data, before relying on such data. This means that the actuary should review the data for reasonableness and consistency unless, in the actuary’s professional judgment, such a review is not necessary or not practical. iv

5 ASOP No. 23 ⎯ December 2004 Similarly, section 3.4, Reliance on Other Information Relevant to the Use of Data, allows 3. reliance on such information, but now does so “unless it is or becomes apparent to the actuary during the time of the assignment that the information contains material errors or is otherwise unreliable.” 4. The standard clarifies that section 3.5, Review of Data, applies whether the actuary prepared the data or received the data from a third party. The section also suggests that, in doing the review of the data, the actuary attempt to determine the definition of each data element used in the analysis. A definition of “review” has been added to section 2, pointing out that this is an informal examination of the obvious characteristics of the data. The sentence that appeared in the previous ASOP No. 23 but was removed from the 5. exposure draft of this revision, which stated that the actuary is not expected to “develop additional data compilations solely for the purpose of searching for questionable or inconsistent data,” was reinserted in section 3.6, Limitation of the Actuary’s Responsibility. 6. Section (c) of 3.7, Use of Data, was expanded to apply to results that are highly uncertain, in addition to those that have a material bias. Appropriate disclosure is required in section 4.1 if the actuary decides to complete the assignment in such circumstances. 7. The committee clarified section 3.8 by explicitly requiring the actuary to document any material defects in the data, in keeping with the requirements of ASOP No. 41, Actuarial . Communications The General Committee thanks everyone who took the time to contribute comments on the exposure draft. The ASB voted in December 2004 to adopt this standard. v

6 ASOP No. 23 ⎯ December 2004 General Committee of the ASB W.H. Odell, Chairperson Ethan E. Kra Phillip N. Ben-Zvi Thomas K. Custis Mark E. Litow Donna C. Novak Larry M. Gorski Ronnie Susan Thierman Burton D. Jay Actuarial Standards Board Michael A. LaMonica, Chairperson Cecil D. Bykerk William A. Reimert Lawrence J. Sher Ken W. Hartwell Lew H. Nathan Karen F. Terry William C. Weller Godfrey Perrott vi

7 ASOP No. 23 ⎯ December 2004 ACTUARIAL STANDARD OF PRACTICE NO. 23 DATA QUALITY STANDARD OF PRACTICE Section 1. Purpose, Scope, Cross References, and Effective Date 1.1 Purpose practice (ASOP) is to give guidance to —The purpose of this actuarial standard of the actuary in the following: a. selecting the data that underlie the actuarial work product; b. relying on data supplied by others; c. reviewing data; d. using data; and making appropriate disclosures with regard to data quality. e. oviding professional ac tuarial services in —This standard applies to actuaries when pr 1.2 Scope all practice areas. Other actuarial standards of practice may contain add itional considerations related to data quality that are applicable to pa rticular areas of practice or types of actuarial assignment. This standard does not require the actuary to audit data. If the actuary departs from the guidance set fort h in this standard in order to comply with applicable law (statutes, regulations, and othe r legally binding authority), or for any other reason the actuary deems appropriate, the actuary should refer to section 4. —When this standard refers to the provisions of other documents, the Cross References 1.3 reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the origina lly referenced document, the actuary should consider the guidance in this standard to the extent it is applicable and appropriate. 1.4 Effective Date —This standard will be effective for any actuarial work product for which data were provided to or developed by the act uary on or after May 1, 2005. In all cases, this standard will be effective for any actuarial work product commenced on or after July 1, 1

8 ASOP No. 23 ⎯ December 2004 2006. Section 2. Definitions The terms below are defined for use in this actuarial standard of practice. —For purposes of data quality, data are appropriate if they are suitable for 2.1 Appropriate Data the intended purpose of an analysis and relevant to the system or process being analyzed. ⎯ 2.2 Audit tion of a set of data for the purpose of To conduct a formal and systematic examina testing its accuracy, using techniques commonly employed by audit professionals. —For purposes of data quality, da ta obtained from inventory or 2.3 Comprehensive Data sampling methods are comprehensive if they c ontain sufficient data elements or records needed for the analysis. —For purposes of this standard, the term re fers to numerical, census, or classification 2.4 Data formation. Assumptions are not data, but data information and not to general or qualitative in are commonly used in the development of actuarial assumptions. —An item of information, such as date of birth or risk classification. 2.5 Data Element 2.6 Practical ⎯ Realistic in approach during the time of the assignment, given the purpose and nature of the assignment and any constraints, including cost and time considerations. ⎯ An informal examination of the obvious characteristics of the selected data to 2.7 Review determine if such data appear reasonable and consistent for purposes of the assignment. A review is not an audit of data. 2

9 ASOP No. 23 December 2004 ⎯ Section 3. Analysis of Issues and Recommended Practices ⎯ Data that are completely accurate, appropriate, and comprehensive are 3.1 Overview frequently not available. The actuary should use available data that, in the actuary’s professional judgment, allow the actuary to perform the desired analysis. However, if material data limitations are known to the actuary, the actuary should disclose those limitations and their implications. The following sections discuss such considerations in more detail. Selection of Data 3.2 —In undertaking an analysis, the actuary should consider what data to use. The actuary should consider the scope of the a ssignment and the intended use of the analysis being performed in order to determine the nature of the data needed and the number of alternative data sets or data sources, if a ny, to be considered. The actuary should do the following: a. consider the data elements that are de sired and possible alternative data elements; and b. select the data with due consideration of the following: appropriateness for the intended purpose of the analysis, including whether 1. the data are sufficiently current; 2. reasonableness and comprehensiveness of the necessary data elements, with particular attention to internal and external consistency; any known, material limitations of the data; 3. 4. the cost and feasibility of obtaining alternative data, including the ability to obtain the information in a reasonable time frame; 5. lternative data set or data source as the benefit to be gained from an a balanced against its availability and th e time and cost to collect and compile it; and 6. sampling methods, if used to collect the data. —In most situations, the data are provided to the 3.3 Reliance on Data Supplied by Others actuary by others. The accuracy and comprehens iveness of data supplied by others are the responsibility of those who suppl y the data. The actuary may rely on data supplied by others, subject to the guidance in section 3.5. In doing so, the actuary should disclose such reliance in an appropriate actuarial communication. 3

10 ASOP No. 23 ⎯ December 2004 3.4 In many situations, the actuary Reliance on Other Information Relevant to the Use of Data ⎯ the appropriate use of data, such as contract is provided with other information relevant to provisions, plan documents, and reinsurance trea ties. The validity and comprehensiveness of hose who supply such information. The actuary such information are the responsibility of t may rely on such information supplied by anothe r, unless it is or becomes apparent to the actuary during the time of the assignment that the information contains material errors or is sclose reliance on information provided by otherwise unreliable. The actuary should di another in an appropriate actuarial communication. A review of data may not always reveal existing defects. Nevertheless, ⎯ Review of Data 3.5 whether the actuary prepared the data or recei ved the data from others, the actuary should review the data for reasonableness and consis tency, unless, in the actuary’s professional judgment, such review is not necessary or not practical. In exercising such professional judgment, the actuary should take into account the extent of any checking, verification, or auditing that has already been performed on the data, the purpose and nature of the assignment, and relevant constraints. When determining the nature and extent of such a review, the actuary should consider the following: ⎯ The actuary should make a reasonable effort to determine the a. Data Definitions definition of each data element used in the analysis, as described in section 3.2. Identify Questionable Data Values ⎯ The actuary should review the data used b. purpose of identifying data values that are directly in the actuary’s analysis for the materially questionable or relationships that are materially inconsistent. If the actuary believes questionable or inconsistent data values could have a material effect on the analysis, the actuary should consider furthe r steps, when practical, to improve the quality of the data. Review of Prior Data ⎯ If similar work has been prev iously performed for the same c. or recent periods, the actuary should cons ider reviewing the current data for consistency with the data used in the prio r analysis. If the actuary does not have the prior data, the actuary should consider requesting the prior data. If, in the actuary’s professional judgment, it is not appropriate to perform a review of the uary has not done such a review and should data, the actuary should disclose that the act disclose any resulting limitation on the use of the actuarial work product. 4

11 ASOP No. 23 ⎯ December 2004 3.6 The actuary is not required to do any of the Limitation of the Actuary’s Responsibility ⎯ following: rmation supplied by others are falsified or determine whether data or other info a. intentionally misleading; b. develop additional data compilations solely for the purpose of searching for questionable or inconsistent data; or audit the data. c. ⎯ Because data that are completely accura te, appropriate, and comprehensive are 3.7 Use of Data ke a professional judgme frequently not available, the actuary should ma nt about which of the following is applicable: a. the data are of sufficient quality to perform the analysis; the data require enhancement before the an b. alysis can be performed, and it is practical to obtain additional or corrected data that will allow the analysis to be performed; judgmental adjustments or assumptions can be applied to the data that allow the c. actuary to perform the analysis. If the actua ry judges that the use of the data, even with adjustments and assumptions applied, may cause the results to be highly uncertain or contain a material bias, the actuary may choose to complete the l existence of the uncertainty or bias, assignment, but should disclose the potentia and, if reasonably determinable, their nature and potential magnitude; d. if the actuary believes that the data are lik ely to contain material defects, the actuary should determine, if practical, the nature and extent of any checking, verification, or auditing that may have been performed on the data. Then, if, in the actuary’s professional judgment, a more extensive revi ew is needed, the actuary should arrange for such a review prior to completing the assignment; or e. if, in the actuary’s professional judgment, the data are so inadequate that the data cannot be used to satisfy the purpose of the analysis, then the actuary should obtain different data or decline to complete the assignment. ⎯ The actuary should comply with the requirements of ASOP No. 41, 3.8 Documentation , regarding the preparation and retention of the documentation. In Actuarial Communications addition, the actuary’s documentation should include the following: 5

12 ASOP No. 23 ⎯ December 2004 a. the process the actuary followed to ev aluate the data, including the review or consideration of prior data; b. a description of any material defects the actuary believes are in the data; cations made to the data, other than routine c. a description of any adjustments or modifi corrections made by reference to source documents, including the rationale for any such adjustments or modifications; and any other documentation necessary to comply with the disclosure requirements of d. section 4.1. Section 4. Communications and Disclosures 4.1 Communication and Disclosure When issuing communications under this standard, the ⎯ addition, the actuary should disclose the actuary should comply with ASOP No. 41. In following items: a. the source(s) of the data; and, if not, any resulting limitations on the use whether the actuary reviewed the data b. of the actuarial work product; c. the extent of the actuary’s reliance on da ta and other information relevant to the use of data supplied by others; d. any material judgmental adjustments or assumptions that the actuary applied to the data, or are known by the actuary to have been applied to the data, to allow the actuary to perform the analysis; e. any limitations on the use of the actuari al work product due to uncertainty about the quality of the data; f. any unresolved concerns the actuary ma y have about the data that could have a material effect on the actuarial work product; g. (1) the existence of results that are highl y uncertain or have a potentially material bias of which the actuary is aware due to the quality of the data; and (2) the nature and potential magnitude of such uncertainty or bias, if they can be reasonably determined; h. the disclosure in ASOP No. 41, section 4.2, if any material assumption or method was prescribed by applicable law (statute s, regulations, and other legally binding 6

13 ASOP No. 23 December 2004 ⎯ authority); i. the disclosure in ASOP No. 41, section 4.3, if the actuary states reliance on other sources and thereby disclaims responsibility for any material assumption or method selected by a party other than the actuary; and tion 4.4, if, in the actuary’s professional j. the disclosure in ASOP No. 41, sec judgment, the actuary has otherwise deviated materially from the guidance of this ASOP. 7

14 ASOP No. 23 ⎯ December 2004 Appendix 1 Background and Current Practices The following appendix is provided for informational purposes, but is not part of the Note: standard of practice. Background An actuarial analysis is based upon an analysis of data, along with practical knowledge of the field of practice and training in actuarial theory, which together enable the actuary to interpret the results of calculations. Throughout the analytic process, data play an important role. The accuracy and validity of the actuarial analysis are dependent on, among other things, the quality of the data used. Hence, an actuarial standard of practice concerning data quality is appropriate. Data frequently contain errors, are not fully complete, and are not precisely appropriate for the intended analysis. Actuaries deal with these limitations, the majority of which are non-critical. However, actuaries are often called upon to perform actuarial services in situations where data limitations may be critical. Actuaries use professional judgment when determining whether and how to refine data or make modifications within the analysis. Current Practices Actuaries use informed judgment to determine what kinds of data are appropriate for a particular analysis. It is important that the data used are relevant to the system or process being analyzed. Persons or organizations responsible for generating, collecting, or publishing data may apply different standards of quality assurance, ranging from straightforward compilation of figures to extensive verification. Actuaries, in turn, deal with the question of the quality of data underlying and with varying levels of review or checking. their work products in a variety of ways Actuaries are called upon to provide analyses for a broad range of uses, from limited distribution within an organization to public exposure. Important aspects of data utilization include documentation and disclosure of (1) the sources of data; (2) review of data; (3) material biases resulting from data used by the actuary; (4) adjustments or corrections made to the data; and (5) the extent of reliance on data supplied by others. Typically, actuaries do not audit data. 8

15 ASOP No. 23 December 2004 ⎯ APPENDIX 2 Comments on the Exposure Draft and Committee Responses Data Quality , was issued in October 2003 The exposure draft of this revision of ASOP No. 23, with a comment deadline of March 31, 2004. Twenty-eight comment letters were received, some of which were submitted on behalf of multiple commentators, such as by firms or committees. For purposes of this appendix, the term “commentator” may refer to more than one person associated with a particular comment letter. The General Committee carefully considered all comments received. Summarized below are the significant issues and questions contained in the comment letters and the committee’s responses. Unless otherwise noted, the section numbers and titles used below refer to those in the exposure draft. GENERAL COMMENTS in addition to those addressed specifically below. The Several commentators suggested various editorial changes clarity and did not alter the intent of the section. committee implemented such suggestions if they enhanced the committee asked readers to comment on whether the In the transmittal memorandum of the exposure draft, exposure draft clarified the previous st andard. Most commentators believed that the revisions did clarify the standard, addressed in the following responses. and others had suggestions that are Comment address issues concerning how results vary when One commentator suggested that the standard should using data with different time horizons. Response The committee believed that issue was more about credibility than data quality and made no change in the standard. Comment so provide guidance on privacy, confidentiality, and A commentator believed that the standard should al distribution of the actuarial report. Response The committee believed such issues were beyond the scope of this standard. ASOP No. 41, Actuarial Communications , provides guidance with respect to actuarial reports. Comment One commentator recommended expanding the title of the standard to add “Actuaries’ Responsibilities in Selecting, Reviewing, and Using Data.” Response se section 1.1, Purpose, identifies the specific The committee believed that this was unnecessary, becau professional services discussed in the standard. Comment A commentator suggested that, since it is common for act uaries to extract their own data for use in their e actuary’s responsibility to review data that the analyses, the standard should more clearly indicate th actuary has independently created. Response The committee agreed and revised section 3.5, Review of Data, in response. Comment required to disclose and resolve material One commentator thought that the actuary should be differences between prior and current period data. Response The committee believed that the actuary should be satis fied that the current data are appropriate and should disclose other concerns related to data quality in accordance with section 4.1(g) (now 4.1(f)). The reconciliation of data from one period to the next is beyond the scope of this standard. 9

16 ASOP No. 23 ⎯ December 2004 SECTION 1. PURPOSE, SCOPE, CROSS REFERENCES, AND EFFECTIVE DATE Section 1.2, Scope to audit the data, while several others supported One commentator objected to not requiring the actuary Comment the statement in the standard that audits are not required. The committee believed that the actuary should generally be required to review, but not audit the data, Response and left this scope limitation unchanged. Comment comply with law, regulation, or other binding Several commentators recognized that the actuary must authority, but disagreed that the actua ry should disclose such a conflict. Response The committee disagreed and retained the disclosure requirement, consistent with other standards. In response to another comment, the committee also a dded a sentence clarifying that the actuary must comply with both the standard and the law when the standard has more extensive requirements than the law. Finally, the wording of this section was modifi ed to clarify that the standard applied only to professional “actuarial” services. Section 1.4, Effective Date A commentator pointed out that it is common in some practice areas to use a significant amount of data Comment alysis after the latest data have been added to the collected in prior years and then perform the current an database or using relevant current data. The comment ator believed that the prior data should be subject originally collected and not be subject to any new only to requirements in effect when the data were requirements in the standard. Response to this section, because it believed that other The committee discussed this point and made no change sections of the standard gave sufficient guidance to the actuary regarding the extent to which the actuary should review the data, including consideration of practicality and materiality. SECTION 2. DEFINITIONS Some commentators suggested adding definitions of other te rms. In most cases, the committee did not believe that was necessary. However, it did add a definition of “revie w,” as suggested by one commentator, to clarify that a review is less formal than an audit and does not verify the accuracy of data, but merely consists of observing its obvious characteristics and abnormalities. Section 2.1, Appropriate (now Appropriate Data) Comment Several commentators suggested adding the word “data” to the title of this section. Response The committee agreed and added “data” here and in the title of section 2.3. Comment One commentator suggested deleting the phrase “relev ant to the system or process being analyzed.” Response The committee thought the existing language was necessary and sufficiently clear and made no change. Section 2.2, Audit Comment Some editorial suggestions were made to improve the definition. The committee adopted some of the suggestions, a dding “for the purpose of testing its accuracy” and Response removing “or review,” because that latter term is now defined and differentiated from an audit. (now Comprehensive Data) Section 2.3, Comprehensive Comment A commentator recommended that “sufficient data elemen ts” be used in this definition in place of “each data element.” Response The committee agreed that this was more appropriate wording and made the change. Comment ssion of inventory or sampling methods. One commentator suggested adding a discu The committee did not see the need for such a discussion. Response 10

17 ASOP No. 23 ⎯ December 2004 Section 2.4, Data Comment A commentator pointed out that actuaries often us e data contained in reports prepared by other data be covered by this definition. professionals and suggested that such Response The committee made no change to this definition, b ecause sections 3.3 and 3.4 address reliance on data and other information supplied by others. Comment indicate that sometimes assumptions are used to One commentator suggested expanding the definition to develop certain data elements. Response The committee did not believe such an expansion was necessary. The use of assumptions to perform such analyses is referenced in section 3.7(c). Section 2.6, Practical Comment the defined term “practical” in response to the A number of comments were received on the inclusion of e exposure draft. Some commentators thought the committee’s request in the transmittal letter of th d suggestions for further improvement. definition was unnecessary, and some offere Response Because the concept of practicality is an important cons ideration in this standard in aiding an actuary to ta, and whether and to what extent to review the make professional judgments regarding selection of da data, among other things, the committee strongly believed that a definition of this term should be included. Comment One commentator pointed out that use of hindsight would be inappropriate in determining what was practical. Response e of the assignment” to the definition. The committee agreed and added “during the tim One commentator wanted to add guidance on considerations for evaluating materiality. Comment The committee believed that materiality is a s ubjective concept that depends on the actuary’s Response professional judgment, and that it was beyond the scope of this standard to define or provide guidance on materiality. SECTION 3. ANALYSIS OF ISSUES AND RECOMMENDED PRACTICES Section 3.1, Overview Comment One commentator pointed out that some assignments do, in fact, require perfect data, and that the standard should recognize this. written to address specific situations that would The committee disagreed that the standard should be Response 5 state that consideration should be given to the require more diligent treatment. Sections 3.2 and 3. purpose and nature of the assignment. Section 3.2, Selection of Data Comment One commentator wanted to clarify the language relating to “review.” Response The committee decided to delete reference to “revie w” in this section as it is thoroughly covered in section 3.5. 11

18 ASOP No. 23 ⎯ December 2004 Comment One commentator believed that section 3.2(b)(5) should be eliminated or at least restricted to alternate data sources reasonably known to the actuary. Response The committee believed this guidance is important and, in view of the comment, carefully considered the wording again and revised the wording to clarify that the actuary is provided adequate leeway to consider ces versus the effort necessary to get them. the benefits of seeking alternative data sour Comment ” and ”data sources” should be consistent here and One commentator suggested that the terms “data sets in section 3.2(b)(5). Response The committee agreed and made changes to accomplish this. Comment One commentator believed “subject to the limitations presented by the actuary’s reliance on others...” should be added to clarify how this sec tion relates to sections 3.3 and 3.4. Response The committee believed that the guidance for selection of data should not depend on whether or not the actuary needs to rely on others to supply the data a nd did not believe such an addition was necessary or appropriate. Comment ility” and adding “time and” in front of the word One commentator suggested deleting “relative availab “cost” in section 3.2(b)(5). The committee did drop “relative” and did add “time and.” Response Section 3.3, Reliance on Data Supplied by Others labeled “blind reliance.” A couple of commentators One commentator supported the concept of what was Comment were uncertain as to whether the implication of such reliance was appropriate and consistent with sections 3.1 or 3.5. Several others comme nted that such reliance was inappropriate. After much discussion and careful consideration, th e committee ultimately agreed that additional clarity Response was needed. Accordingly, the committee added the phr ase “subject to the guidance in section 3.5,” and that section provides that the actuary should review the data for reasonableness and consistency unless, in the actuary’s professional judgment, it is not practical or not necessary to do so. Section 3.4, Reliance on Other Info rmation Relevant to the Use of Data Two commentators were uncomfortable with the implication of absolute reliance in this section, Comment other sections of the ASOP by setting a different believing that it could conflict with the guidance in standard. The committee believed a lower standard was appropriate but agreed that the actuary should not proceed Response with the analysis based on information that is known by the actuary to be suspect. Accordingly, the apparent to the actuary during the time of the committee added the phrase “unless it is or becomes assignment that the information contains mate rial errors or is otherwise unreliable.” Comment Two commentators thought that “or summaries of such documents” should be specifically added to the list. Response Because the list provides examples only, the committee believed that this added language was not needed. Section 3.5, Review of Data Comment Several commentators questioned the meaning of the word “appropriate.” Response The committee deleted the word “appropriate” where it might be confusing. Comment necessary to review prior data and suggested Several commentators questioned whether it was always adding the word “consider” in section 3.5(a) regarding review of prior data. The committee agreed and incorporated this word ing change in what is now section 3.5(c). Response 12

19 ASOP No. 23 ⎯ December 2004 One commentator believed that a new section on the time period of the data should be added. Comment The committee believed this was sufficiently covered in section 3.2(b)(1). Response Two commentators were unclear if this section applied to data received from others. Comment The committee clarified that it does apply and that the actuary should review for reasonableness and Response consistency “unless, in the actuary’s professional judgment, such review is not necessary or not practical.” Comment One commentator suggested adding a new consideration: “Data Definitions ⎯ The actuary should make a reasonable effort to determine the definition of each data element provided.” Response The committee agreed and added what is now section 3.5(a). Comment requiring a datum-by-datum review and a datum-by- One commentator interpreted section 3.5(b) as datum correction process, thereby precl uding any type of sampling procedure. Response The committee disagreed with this interpretation. Section 3.2 specifically allows for sampling procedures. Based on the definition of “review,” th e committee believed guidance for the actuary to look for obvious errors or inconsistencies that may ma terially affect the analysis was appropriate. Section 3.6, Limitation of the Actuary’s Responsibility Comment Several commentators responded to a question reques ting comments about whether it was appropriate to delete the following language from section 5.3(a) of the previous ASOP No. 23: “The actuary is not ly for the purpose of searching for questionable or required to develop additional data compilations sole believed the deletion was appropriate, most believed inconsistent data.” While a couple of commentators that the language should be put back into the revision. Response The committee agreed with the majority and reinserted what is now section 3.6(b). Several comments suggested eliminating the word “intentionally” inaccurate. Comment ecause just removing the word “intentionally” would The committee disagreed and left this wording, b Response weaken the standard by implying that the actuary is relieved of any responsibility for inaccurate data, whether intentional or not. However, after lengt hy discussions the committee revised the section by , in addition to reinserting section 3.6(b). amending the wording of what is now section 3.6(a) Section 3.7, Use of Data apply when material defects are likely, not just One commentator suggested clarifying section (d) to Comment possibilities. The committee agreed and added the words “are likely to” to this subsection. Response One commentator suggested changing the word “should” to “must,” eliminating the words “when Comment be in the summary level presentation of the results. practical,” and specifying that this disclosure should Response The committee disagreed and left the wording as is. Comment the opening paragraph to clarify that data are Two commentators suggested changing the wording in rarely completely accurate, appropriate, and comprehensive. Response The committee agreed and changed the wording in the opening paragraph. 13

20 ASOP No. 23 ⎯ December 2004 Comment One commentator suggested that section 3.7 could be viewed to be in conflict with section 4.1, Disclosure. Response The committee disagreed that there would be a conflict. If the actuary believes there is a material defect in the data, the actuary can still perform the assignment and make the disclosures in section 4.1. One commentator suggested removing the words “if practical” from section (d). Comment The committee disagreed and left this wording. Response One commentator suggested defining a process for what to do if material defects have been found or are Comment known to exist in the data. Response this section to provide guidance to the actuary in discriminating between The committee prepared different types of situations. The committee believe d that sections (d) and (e) provided adequate guidance in this respect. this section since all items in this section are One commentator suggested removing the first sentence of Comment based on the premise that the actuary is aware of data deficiencies. Response The committee revised the first paragraph of section 3. 7 to clarify that the actuary should decide which of the circumstances in sections (a) − (e) apply, even if the actuary is not necessarily aware of material defects in the data. One commentator suggested removing the first sentence from section (d). Comment Response The committee disagreed and left the first sentence. Comment One commentator suggested that this section provi des only two alternatives for inadequate data. Response The committee disagrees and refers the commentator to the four alternatives contained in sections (e). The committee also added a consideration in s (b) − ection (c) to address results that may be highly uncertain. Section 3.8, Documentation Comment One commentator suggested adding a section requiring a description of any material defects the actuary believes are in the data and the review conducted by the actuary on this data. s and added appropriate wording to section 3.8(b). The committee agreed in respect of material defect Response Two commentators suggested eliminating the first sentence since it was confusing. Comment The committee agreed with this commentator and e liminated the first sentence of this section. Response One commentator suggested changing the wording of section (b) by replacing it with “whether the Comment tion 3.5 and, if so, the scope of the review.” actuary reviewed the data as contemplated by sec The committee agreed that additional clarity wa s needed and revised the entire section 3.8. Response Comment section (c) by inserting the words “if reasonably One commentator suggested changing the wording of estimable, the” before “effect.” Response too burdensome and revised the language in section The committee agreed that this language could be (c). 14

21 ASOP No. 23 December 2004 ⎯ Comment One commentator suggested adding words to this sec tion similar to those in the disclosure section pertaining to a description of the insufficiencies or i ssues with the data that may have an impact on the results. Response The committee revised section 3.8, adding secti ons (b) and (d) to deal with this issue. needed as long as the disclosure section exists. One commentator suggested that this section is not Comment The committee believed there is a need for this section, because this section applies to the work papers of Response the actuary and not the disclosure that goes along w ith a work product. In addition, some items that should be documented need not be disclosed. Numerous commentators suggested changes to section (b). Comment The committee agreed with these commentators and reworded section (b) with consequential changes to Response section (a). SECTION 4. COMMUNICATIONS AND DISCLOSURES Section 4.1, Disclosure One commentator suggested that the standard does not appear to require disclosure of the actuary’s Comment actuarial opinion, regarding data that could have a unresolved concerns, particularly in the case of an material effect on the actuarial work product. Response Section (g) (now (f)) requires the actuary to disclo se any unresolved concerns the actuary may have about the data. That disclosure is required in an appropriate actuarial communication, regardless of whether it is an actuarial opinion. Comment principal” after “following items” to clarify to One commentator suggested adding the words “to the whom the disclosure is to be made and also wanted to add the words “if other than the principal” to item (a). Response The committee did not concur with this commentator. Comment Several commentators believed that section (b) was unclear or unnecessary. Response The committee deleted section (b). Comment ection (c) (now (b)) to reflect the fact that the One commentator suggested changing the wording in s standard seems to mandate that actuaries almost al ways review data. Another commentator believed that section (c) (now (b)) should read, “the extent of the actuary’s review of the data” rather than “whether the actuary reviewed the data.” Response nd revised what is now section (b) to require, where The committee very carefully considered this issue a limitations on the use of the actuarial work product. no review was performed, disclosure of any resulting Comment “judgmental adjustments” in section (e) (now Two commentators suggested adding “material” before section (d)). Response The committee agreed and made this change. 15

22 ASOP No. 23 December 2004 ⎯ Comment ould be clearer if it ended after the phrase “work One commentator believed that section (f) (now (e)) w product.” Response The committee revised the language to omit reference to “not sufficiently reviewed,” thereby including situations where the actuary did not review the data as well as situations where the actuary did review the data but is uncertain about the data. Comment One commentator believed that section (g) (now (f)) was unnecessary because it was covered by section (h) (now (g)). The commentator believed it was burdens ome for the actuary to disclose concerns that would not have a material effect. Response The committee disagreed and believed that both sections are needed to fully describe required disclosure because they cover different situations. Howeve r, the committee did agree that only “unresolved concerns the actuary may have about the data that could have a material effect...” are required to be disclosed, and the wording of these two sections incorporates the word “material” to support this. Comment could conflict with section 3.7, which does not One commentator believed that section (g) (now (f)) contain an option for producing a work product with adequa te disclosure if there is a material effect in the data. Response The committee did not believe there was a conflict, but revised section 3.7(c) to clarify that the actuary may produce a work product even if the data (after judgmental adjustments or assumptions have been applied) may produce results that “are highly uncertain or contain a material bias” as long as this is disclosed. APPENDIX (now Appendix 1) Current Practices One commentator suggested inserting the words “impor tant aspects of data utilization include such” in Comment deleting the words “of such items” after the word the last paragraph of this section as well as “disclosure” in this same section. The commentator al so suggested deleting the word “the” after “reliance on” and deleting the words “are important aspects of utilization of data” in the last paragraph of this section. Response these comments and made appropriate changes. The committee agreed with the general thrust of One commentator suggested removing the words “compl ete and independent verification of the data” in Comment the second paragraph of this section. The commentator went on to suggest that actuaries deal with the quality of data in a variety of ways and “with varying levels of review or checking.” Response The committee agreed with this commentator and changed the wording as suggested. 16

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